How to choose a business incorporation service

Forming a company means filing documents with a state to create a legal entity. For an LLC that is usually a certificate or articles of organization. For a corporation it is articles or a certificate of incorporation. After that come the steps that make the entity usable: an employer identification number, an operating agreement or bylaws, a bank account, and, where required, a registered agent.

Formation services do some or all of this. A few file the state paperwork and stop. Others bundle the surrounding steps and sell ongoing compliance. Know which you are buying.

The service cannot decide for you whether an LLC or a corporation fits your business, or whether to form in Delaware or in the state where you operate. Choose the entity type with a tax professional or attorney first, since it affects taxes, liability, and the investors you can bring in. The Small Business Administration has a plain-language overview of entity types.

A general rule helps: if you plan to raise venture capital, a Delaware C corporation is the usual choice. If you run an owner-operated business in one state, forming there is often simplest and avoids paying two states. Forming in one state while operating in another generally means registering as a foreign entity in the state where you do business, so a cheaper filing in a different state can cost more once both are counted.

Prices have three layers: the service fee, the state filing fee, and add-ons. State fees vary widely by state and are the same for every service, so compare service fees only. Ask whether the quote includes state fees or adds them at checkout.

Check these items, and whether each is included, extra, or something you handle yourself:

Every state requires a registered agent with a physical address in the state to receive legal papers. Many formation services include one for the first year and charge for renewal. Decide whether you want to keep the same agent, because switching later takes paperwork.

A business mailing address is a separate product. A registered agent address and a virtual mailbox are not the same thing, and some banks and state agencies treat them differently.

Formation is the start of paperwork, not the end. Delaware corporations file an annual franchise tax report, due March 1, and Delaware LLCs pay an annual tax, due June 1. Other states have their own annual or biennial reports. Federal beneficial ownership reporting has changed more than once, so check FinCEN's current guidance rather than relying on an older article or a service's checklist.

Ask whether the service tracks and files annual reports, whether reminders are included, and what it charges. A company that misses these can lose good standing, which can freeze a bank account or a financing.

Startups planning to raise money should look for a service that handles Delaware C corporation formation, founder stock, vesting, and 83(b) filings together. A freelancer or consultant forming an LLC needs a clean filing, an operating agreement, and a bank account, and little else. Foreign founders should ask about opening a US bank account, an address in the US, and the tax filings that follow for a foreign-owned company. Businesses with several owners should ask who drafts the operating agreement and whether it covers the buyout and decision rules that matter among co-owners.

Upsells to watch: rush filing when you are not in a hurry, a package of templates you will not use, prepaid compliance bundles, a bundle of tax filing sold at formation when you have not yet picked a preparer, and trademark or domain add-ons. Each might be right for someone. None is needed to form a company.

Also check how hard it is to leave. You should be able to transfer your registered agent and take your documents without a fee.

Institution sells incorporation and registered agent service. That is a reason to read this guide critically, and a reason we wrote the checklist so you can use it on any provider.